PART IV. FINANCE CMD 16

Transcription

1 PART IV. FINANCE 1

2 FINANCE IN SUPPORT OF STRATEGY Bernard DELPIT Group CFO 2

3 FINANCE IN SUPPORT OF STRATEGY Conservative accounting supporting transparency Hedging policy protecting performance Disciplined capital allocation sustaining growth Financial ambition creating success 3

4 CONSERVATIVE ACCOUNTING OE AFTERMARKET Revenues booked at net contract price including variable consideration (allowances ) All costs incurred are expensed No capitalization of negative margins Margins booked at delivery Upon delivery if positive No later than at delivery if negative Revenues booked at net contract price Timing of revenue recognition depends on type of contracts T&M : at shop visit Long term service agreements (LTSA): ESPH: monthly billings ESPO: fraction as monthly billings and remainder at shop visit Margins T&M: at the shop visit LTSA: booked progressively Provisions to reflect future maintenance costs based on engine behaviour & contracts requirements Start up LEAP losses booked in P&L as incurred ( ) No anticipation of LTSA margins 4

5 CONSERVATIVE ACCOUNTING IFRS 15 PROJECT IFRS 15 mandatory from proforma for comparison Opening impact on Equity at 01/01/2017 PRELIMINARY ASSESSMENT Main areas affected Revenue based on milestones (Defense) Implementation guidance yet to be finalized Upfront revenues (R&D sales) Project launched at Safran and ongoing industry discussions Per Flight Hour service agreements Some classification changes in the P&L Key items Identification of performance obligations Timing of transfer of control Opening Balance Sheet Some transactions with customers booked as charges could be instead deducted from revenue (e.g. special warranties, penalties ) Early stage of analysis and assessment, next update at FY 2016 earnings 5

6 CONSERVATIVE ACCOUNTING Potential impacts of IFRS 15 implementation on current civil engines revenue Services T&M: Limited potential impact ESPH/ESPO: recognition of revenue when costs are incurred (at SV) Takeaways LEAP: 50-60% of aftermarket on ESPH/ESPO Accounting under IFRS 15 expected to be close to current T&M revenue recognition Gradual transition for Propulsion OE Limited potential impact CFM56 aftermarket will remain mostly a T&M business LEAP will represent 20% of CFM fleet in the 2020 s 2020 s: P&L of services will remain dominated by current model 6

7 HEDGING To protect economic performance from /$ volatility and provide time to adapt cost structure to an adverse FX environment PRINCIPLES To optimize financial benefits of hedging whenever possible without jeopardizing protection INSTRUMENTS Forward $ sales / Y+3-Y+4 Accumulators: day after day hedging build up Options to increase coverage and/or improve hedged rate Translation effect not hedged* No views taken on spot rate evolution Transaction effect hedged through the coverage of net exposure to the $ Benefits from long term volumes of net exposure (supported by backlog) Mark to Market variations neutralized in adjusted data Risk: loss of opportunities only *except net investment hedge 7

8 HEDGING ($bn) Yearly exposure: $7.4bn to $8.0bn Increasing level of net USD exposure for in line with the growth of businesses with exposed USD revenue 2016 & 2017 fully hedged Estimated impact on recurring operating income of target /$ hedge rates /$ Target hedge rate EBIT impact vs previous year (in M) Up to 250M Up to 100M Target /$ hedge rates under conditions described in 2015 annual results disclosure 250M to 500M of tailwind over e 8

9 HEDGING Reminder of the /$ spot and forward rates seen in 2014 and average spot 1.33 (High 1.39, Low 1.21) 2015 average spot 1.11 (High 1.21, Low 1.05) In 2015, the forward rate for 2018 was on average 1.16 (High 1.25, Low 1.10) In 2015, the forward rate for 2019 was on average 1.19 (High 1.28, Low 1.13) Target ranges at for 2018 and for 2019 include opportunistic hedges at 1.08 (as communicated in October 2015) and optional strategies at higher rates set up in the course of 2014 which matured at the end of 2015 Where the achieved hedge rates for 2018 and 2019 will lie in the target ranges will depend on whether the /$ remains below 1.25 in 2016 and

10 CAPITAL ALLOCATION Technological differentiation through R&D R&D spending peaked in 2014 and will continue to decline during period of the plan Discipline in sustaining engineering New opportunities to be selected under strict conditions Capital Expenditure to support growth CAPEX peaking in 2016 stabilization at a lower level going forward New products ramps, production rate increases, international footprint Growing cash returns to shareholders Confirming 40% pay out ratio for dividend distribution going forward Acquisitions In core activities only Under strict conditions of IRR and implicit rating 10

11 CAPITAL ALLOCATION In M 2, R&D spending 2,100M In M 1, CAPEX spending 1, Total R&D effort 1,356M 1, Total self-funded R&D 495M Capitalized R&D e 2017e 2018e 2019e 2020e e 2017e 2018e 2019e 2020e Sustained R&T for the long term Decrease of development spending as programs enter into service Self funded R&D trending towards 1bn Expensed R&D peaking in 2017 Supporting LEAP ramp up Production rate increases (A320, 737, A350, 787) Production capacity (carbon) Strict investment criteria Trending towards 3% of sales by

12 CAPITAL ALLOCATION trends Bn WC Realized Growth in cash from operations (CFO*) CFO* Trend Higher working capital (WC) Lower capitalized R&D and CAPEX after 2016 CFO* WC (0.1) R&D** CAPEX R&D** CAPEX FCF conversion rate: above 40% in 2016 to average 50% over (6.6) FCF FCF Dividend paid ( ) More FCF generation offering increased headroom Net debt: (0) Dec 31, Net debt: (0.7) Dec 31, 2015 (2.1) * Including expensed R&D ** Capitalized R&D 12

13 FINANCIAL AMBITION MAIN ASSUMPTIONS VIEW Scope Steady organic revenue growth 2016 outlook is applicable to the Group s structure as of December 31, 2015 and does not take into account the impact in 2016 of the finalisation of ASL For the period, ASL is expected to be consolidated using the equity method (50%) FX By convention, average spot rate of EUR/USD spot rate of 1.11 in 2016, 1.12 for Including benefits of medium-term FX hedging policy Accounting Safran s outlook is based on the Group s current accounting practices No anticipation of IFRS 15 potential impacts Aerospace: OE production ramp-up (narrowbody & widebody, military, helicopters), growth in services Defence: executing on contract wins (Rafale, Patroller, Paseo ) Security: strong organic growth based on existing contracts and new products Providing strong base for progress in profitability Transitory pressure on Propulsion profitability Steadily increasing contributions of Aircraft Equipment, Defence and Security 13

14 FINANCIAL AMBITION CFM56 / LEAP OE contribution to gross margin CFM56 LEAP CFM56+LEAP Cost of production: Learning curve of LEAP - 40% Standard cost of production e 2017e 2018e 2019e e 2017e 2018e 2019e 2020e Gradual reduction of CFM56 contribution Transitory losses on Leap OE Break-even on LEAP OE production by end of decade Initial production costs > standard cost of production (double sourcing; volumes) Targeting a 40% reduction in production cost by 2020 (double sourcing; learning curve) 14

15 FINANCIAL AMBITION Aircraft Equipment Defence Security 15% 15% 15% 10% 10% 10% 5% 5% 5% 0% 0% 0% e 2017e 2018e 2019e 2020e e 2017e 2018e 2019e 2020e e 2017e 2018e 2019e 2020e Growth in services Push export sales Existing contracts profitability New programs contribution Dual use technologies New products Productivity gains and cost control measures across all businesses 15

16 FINANCIAL AMBITION Temporary headwind from LEAP transition and expensed R&D Offsetting factors: growing contribution of civil aftermarket and other businesses Tailwind from FX Indicative profile of Group gross margin OE CFM56 & LEAP Other OE Propulsion margin to remain in the mid to high teens during transition Group margin consistent with the record set in 2015 during transition and trending above 15% when transition is completed SERVICES e 2017e* 2018e 2019e 2020e * Starting 2017, excluding the contribution of assets contributed to ASL. For , ASL is expected to be consolidated under the equity method. 16

17 AMBITION Revenue target above 21 billion in 2020 Assuming average spot rate of USD 1.11 to the Euro in 2016 and 1.12 over Recurring operating margin trending above 15% in 2020 Including benefits of medium-term FX hedging policy EBIT to Free Cash Flow conversion averaging 50% over Subject to customary elements of uncertainty on the timing of downpayments and the rhythm of payments by certain state customers Future opportunities will be evaluated on their merits and investments decided as appropriate 17